Investment Decision Based on Probability Discussion Assignment
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Investment Decision Based on Probability Discussion Assignment
Kennedy Trucking Company (Investment Decision Based on Probability
Kennedy Trucking Company (investment decision based on probability analysis) (LO1) Five years ago, Kennedy Trucking Company was considering the purchase of 60 new dieseltrucks that were 15 percent more fuel-efficient than the ones the firm is now using. Mr.
Hoffman, the president, had found that the company uses an average of 10 million gallons of diesel fuel peryear at a price of $1.25 per gallon. If he can cut fuel consumption by 15 percent, he will save$1,875,000 per year (1,500,000 gallons times $1.25). Mr. Hoffman assumed that the price of diesel fuel is an external market force that he cannotcontrol and that any increased costs of fuel will be passed on to the shipper through higher ratesendorsed by the Interstate Commerce Commission. If this is true, then fuel efficiency would savemore money as the price of diesel fuel rises (at $1.35 per gallon, he would save $2,025,000 intotal if he buys the new trucks). Mr. Hoffman has come up with two possible forecasts shownbelow—each of which he feels has about a 50 percent chance of coming true.
Under assumption number 1, diesel prices will stay relatively low; under assumption number 2, diesel prices willrise considerably. Sixty new trucks will cost Kennedy Trucking $5 million. Under a specialprovision from the Interstate Commerce Commission, the allowable depreciation will be25 percent in year 1, 38 percent in year 2, and 37 percent in year 3. The firm has a tax rate of40 percent and a cost of capital of 10 percent.a.First compute the yearly expected price of diesel fuel for both assumption 1 (relativelylow prices) and assumption 2 (high prices) from the forecasts below.Forecast for assumption 1 (low fuel prices):
B what will the dollar savings in diesel expenses for 1 year for assumption 1 and assumption 2
Investment Decision Based on Probability Discussion Assignment
RUBRIC
Excellent Quality
95-100%
Introduction 45-41 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Literature Support
91-84 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Methodology
58-53 points
Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met.
Average Score
50-85%
40-38 points
More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.
83-76 points
Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.
52-49 points
Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.
Poor Quality
0-45%
37-1 points
The background and/or significance are missing. No search history information is provided.
75-1 points
Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.
48-1 points
There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met
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Investment Decision Based on Probability Discussion Assignment